Why would a document strategy company be concerned with how healthcare companies are organized or how the products work?
Well, with any good services company it is vital to know the business you are supporting. Since 1994, I have been working with healthcare companies to produce their compliance documents. The most interesting thing I have observed in working with healthcare companies for the past 18 years is that the construction of the compliance documents has not changed drastically. And all health insurance companies suffer from the same dilemma, legacy system paralysis – old systems and new benefits.
The opportunity to see how health insurance companies create products, contracts, EOBs, EOPs and wellness programs and then receiving those same documents in my personal life has allowed me to share how I use and read the compliance documents I receive. It is beneficial to have a knowledge both professionally and personally when working with insurance companies to streamline their document production.
In this blog series, I will outline some high level information about how health insurance companies work, the types of providers and product types. Part One, covers general information and a quick glossary of the most prevalent terms used in communicating healthcare benefits.
Healthcare System Overview
Healthcare refers to the treatment and management of illness, and the preservation of health through services offered by the medical, dental, pharmaceutical, clinical laboratory sciences, nursing, and health professions. Healthcare embraces all the goods and services designed to promote health, including preventive, curative and palliative interventions, whether directed to individuals or to populations.
What is a Healthcare Provider?
A healthcare provider is an organization that provides healthcare personnel and infrastructure to deliver proper care in a systematic way to groups and individuals. A healthcare provider could be the government, a healthcare insurance company, a healthcare equipment company, or an institution such as a hospital or medical laboratory. Healthcare professionals may include physicians, dentists, support staff, nurses, therapists, psychologists, pharmacists, chiropractors, and optometrists.
Health insurance removes some of the financial constraints of obtaining health services by spreading the risks and cost of care across large numbers of people. While there are many types of health insurance, all of them in one way or another serve this primary purpose.
Under national and state entitlement programs, the government is the underwriter of care, or insurer, and pays for most benefits. Under private insurance, non-profit organizations like many Kaiser Permanente and for-profit organizations like United Healthcare collect funds from enrollees and their employers and pay for benefits and operating costs.
The amount of money that the government can spend on healthcare is determined by political decisions that weigh the amount of funds available against other uses for the money. Limits on tax increases and public spending, combined with rapid escalation of costs of healthcare, have stressed the government’s ability to pay for care.
Private insurers, on the other hand, are limited to the revenue collected from enrollees and their employers through premiums. Premiums, in turn, can only be raised to the extent that they remain competitive in the health insurance market.
All insurers, whether government or private, are facing the pressures of increasing healthcare costs, competition in the marketplace, and fiscal constraints from employers and tax payers.
Various forms of private health insurance coverages are available from several different types of insurers: insurance companies, hospital and medical service plans (like Blue Cross and Blue Shield), group medical plans operating on a pre-payment basis (such as health maintenance organizations), and others.
How it works
A health insurance policy is a contract between an insurance company and an individual or their group (e.g. an employer). The contract can be renewable annually or monthly. The type and amount of healthcare costs that will be covered by the health insurance company are specified in advance, in the member contract or “Evidence of Coverage” booklet. The individual insured person’s obligations may take several forms. See the definitions below regarding policy information and benefits.
Premium: The amount the policyholder or his sponsor (e.g. an employer) pays to the health plan each month to purchase health coverage.
Evidence of Coverage (EOC): The EOC is a comprehensive resource guide to your healthcare coverage. It explains your benefits, premiums, and cost-sharing; conditions and limitations of coverage; and plan rules.
Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its share. For example, a policyholder might have to pay a $2500 deductible per year, before any of their healthcare is covered by the health insurer. It may take several doctor’s visits or prescription refills before the insured person reaches the deductible and the insurance company starts to pay for care.
Copayment: The amount that the insured person must pay out of pocket before the health insurer pays for a particular visit or service. For example, an insured person might pay a $45 copayment for a doctor’s visit, or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a copayment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment, while the insurance company pays the other 80%. If there is an upper limit on coinsurance, the policyholder could end up owing very little, or a great deal, depending on the actual costs of the services they obtain.
Coverage limits: Some health insurance policies only pay for healthcare up to a certain dollar amount. The insured person may be expected to pay any charges in excess of the health plan’s maximum payment for a specific service. In addition, some insurance companies have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum and the policyholder must pay all remaining costs.
Out-of-pocket maximums: Similar to coverage limits, except that in this case, the insured person’s payment obligation ends when they reach the out-of-pocket maximum, and the health company pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.
Exclusions: Not all services are covered. The insured person is generally expected to pay the full cost of non-covered services out of their own pocket.
In-Network Provider: A healthcare provider on a list of providers preselected by the insurer. The insurer will offer discounted coinsurance or copayments, or additional benefits, to a plan member to see an in-network provider. Generally, providers in network are providers who have a contract with the insurer to accept rates further discounted from the “usual and customary” charges the insurer pays to out-of-network providers.
Prior Authorization: A certification or authorization from the healthcare provider prior to any major medical service occurring. Many smaller, routine services do not require authorization.
Explanation of Benefits (EOB): A document sent by an insurer to a patient explaining what was covered for a medical service, and how they arrived at the payment amount and patient responsibility amount.
Prescription Drug Plans: A form of insurance offered through some employer benefit plans, where the patient pays a copayment and insurance covers part or all of the balance for drugs covered in the plan formulary.
Formulary: A Formulary or Preferred Drug List is a list of brand-name and generic medications that have been reviewed and selected by a committee of practicing doctors and clinical pharmacists for their quality, cost savings, and effectiveness. If your prescription coverage includes a Formulary, you can save money by encouraging your doctor to prescribe you medications from this preferred list.
Explanation of Payment (EOP): An EOP statement will accompany claims denials and payments. The statement reflects any claims paid or denied during the previous period. All denied claims will have denial codes and our reasons for denying the claim.
Capitation: An amount paid by an insurer to a healthcare provider, for which the provider agrees to treat all members for specific negotiated rates.
In the Part Two of Healthcare 101, I will cover the type of health plans from Managed Care to Consumer Direct Health Plans. Since we all have to deal with insurance in our lives, we can all be better informed. I have been able to learn this information over the years and take advantage of the same information in my professional life. So stay tuned for future blogs on Medicare, Life and Property and Casualty.